In The Headlines
The U.S. Emerges as an Energy Superpower
For decades, America depended on the world for energy. Today, the U.S. is becoming a global supplier of oil and natural gas in its own right. This year, for the first time ever, the U.S. started turning gas from prolific shale formations into liquefied natural gas (LNG) and sending it overseas. In 2017, the country may be exporting more of the heating fuel than it imports for the first year since the 1950s.
Refurbished pipelines and terminals will come online next year to help unleash the U.S. shale gas boom into the world markets. But risks still loom. It remains costly to ship U.S. gas to major consumers in Europe and Asia, and the new administration’s trade priorities could make U.S. LNG more expensive than supplies from other producers around the world.
Just a decade ago, gas supplies from conventional wells were drying up. Major energy companies such as Exxon Mobil Corp., BP Plc, and Chevron Corp. were planning to spend billions on gas import terminals to offset the decline. The technique known as hydraulic fracturing, or fracking, changed everything for gas drillers, allowing them to pull the fuel out of layers of shale rock and touching off the U.S. shale revolution.
America’s frackers are pulling 18 billion cubic feet of gas per day from the Marcellus shale formation in the eastern U.S., more than any other domestic shale deposit. But the U.S. pipeline system was designed only to move gas from the Gulf Coast to cities in the Northeast—not the reverse. In order to get the gas to the Gulf Coast, where export terminals are being built to send the fuel overseas, pipelines are being re-engineered to flow south. Thousands of miles of bidirectional pipelines are slated to be online in 2017.
Among other sources, Cheniere Energy Inc. has contracts with several bidirectional pipelines to receive fracked gas from Marcellus. Cheniere won approval from U.S. regulators to export LNG in 2010, years ahead of competitors. Cheniere’s Sabine Pass terminal is currently the only operational export terminal in the lower 48 states. That is about to change, though, as four more terminals are forecast to become operational by 2018 and at least a dozen more have been approved or are pending certification. About 40 shipments of LNG have been exported from Cheniere’s Sabine Pass terminal in Louisiana, which began operations in February. Most of the cargoes have been delivered to South America and Mexico. Once all five terminals are fully operational, U.S. energy producers would have the capacity to export 10 billion cubic feet of LNG daily, up from about 1 billion in 2016.
It is less clear who will purchase all this U.S. gas—and energy companies are asking for permission to send even more abroad. The Department of Energy is reviewing more than two dozen applications from companies seeking to export up to 36 billion cubic feet a day, or nearly half of U.S. production, to countries that don’t have trade agreements with the U.S. While markets in South America are poised to absorb some of this supply, increased competition abroad could make it tough for U.S. gas to compete farther from home.
Price is another concern. Although U.S. gas at the benchmark Henry Hub in Louisiana dropped to historic lows earlier this year, transportation costs make it cheaper for buyers in Japan and South Korea to import the fuel from Australia and Qatar. The new administration also threatens to put an end to U.S. involvement in the North American Free Trade Agreement, a step that could make U.S. exports to Mexico costlier. Without another gas price drop, future markets for U.S. LNG may be limited. The shale revolution has undoubtedly put America on a path to becoming a global gas powerhouse. The ability to find more buyers at a competitive price as U.S. capacity increases will dictate how dominant the U.S. will become as an energy power in 2017 and beyond.
Citations
1. http://bloom.bg/2gx4onQ – Bloomberg
2. http://bit.ly/2g5YhZg – Forbes
Lenovo’s 12 Year Climb to the Top of the PC Business
Nearly a dozen years after its acquisition of IBM’s personal computer (PC) business, Lenovo’s bid to transform from a China-based business to a global company appears to have proven the skeptics wrong. The $1.75 billion deal made Lenovo the world’s third-largest PC company at the time. The PC maker became the world’s top PC company in 2013 and has since expanded its reach to the tablet and smartphone markets.
Originally called Legend Computer, the PC company began life in 1984 in a guardhouse in Beijing. Liu Chuanzhi, the current chairman of Legend Holdings and founder of the Lenovo Group, had borrowed the yuan equivalent of $25,000 from the Chinese Academy of Sciences, where he worked as a researcher, to test his capabilities and see what he could come up with in the personal computer space.
His timing was good because the Chinese Communist Party had started pursuing economic reforms and adopting socialism with Chinese characteristics. “I felt the time for new hope had arrived,” Liu said of the government’s decision to move to a market economy in the 1980s. “When I first started work, it was at the end of the Cultural Revolution but I was restricted,” Liu said, “I wasn’t able to do anything so I felt really helpless at the time.”
Nevertheless, Liu and his team of researchers stood out from the market because of their ability to program globally imported PCs with a module that allowed the machine to read and write Chinese characters. “With this, we managed to help more Chinese people use the PC,” Liu said. According the Liu, the 2005 IBM deal was necessary for Lenovo’s survival. “If our business was restricted to the Chinese market, we might have faced stagnation and died off,” Liu said.
However, the takeover wasn’t all smooth sailing. The divergent views of Yang Yuanqing, Lenovo’s current chief executive, and the then-CEO of IBM’s PC arm led to friction between both sides. “Frankly speaking, Yang was right (and) … the American was rather myopic in his vision for the company. At that time, the computer industry was experiencing a transformation from enterprises buying computers to consumers purchasing them,” Liu said.
The existing Thinkpad line was targeted at enterprises. But developing a new product line for consumers would have required considerable investments that the American CEO was unwilling to commit at the time, said Liu. As a result, Liu returned as chairman to resolve the crisis and turned the company back to the path of profitability. “Cultural conflict is inevitable, but it is important not to politicize it and make it into a clan war,” he said.
Going forward, Liu says that the PC industry will continue to shrink. “The total pie is declining but Lenovo’s share is still increasing,” Liu said, pointing to Lenovo’s developments in its smartphone business as leading the way forward. “Over the past 5 to 6 years, (the smartphone segment) hasn’t been that successful … because it made hundreds of models a year to satisfy the demands of the telcos but this resulted in lower end smartphones,” Liu said. However, he’s optimistic that things will turn around. “After acquiring Motorola, we’ve been making higher quality smartphones (and) launching about 1 or 2 models a year,” Liu said. “After using the smartphones myself, I find the quality has improved remarkably,” he said.
Citations
1. http://cnb.cx/2fXQ3ip – CNBC
2. http://s.nikkei.com/2gTgvOK – Nikkei Asian Review
The Good News Is . . .
• The unemployment rate declined to 4.6% in November, and total nonfarm payroll employment increased by 178,000, the U.S. Bureau of Labor Statistics reported. Employment gains occurred in professional and business services and in health care. The number of unemployed persons declined by 387,000 to 7.4 million. Both measures had shown little movement, on net, from August 2015 through October 2016.
• Jack in the Box, Inc., a leading fast food franchise, reported earnings of $1.03 per share, an increase of 16/5.0% over year-earlier earnings of $0.88 per share. The firm’s earnings topped the consensus estimate of analysts by $0.15. The company reported revenues of $398 million, an increase of 12.5%. Management attributed the results to increased royalty revenue and rental income due to strong unit volume at franchised stores.
• Viacom announced a deal to purchase Argentina’s largest broadcast network, Televisión Federal, for $345 million from Telefónica of Spain. The all-cash purchase of Telefe, as it is commonly known, gives the American media giant a strong presence in Latin America. Telefe reaches 95% of Argentina’s households through a network of channels and is also a production powerhouse, spreading content throughout the region. An important part of the acquisition is Telefe’s production capacity, including 12 studios that produce more than 3,000 hours of Spanish-language content yearly. It also has a library of more than 33,000 hours of content that could help Viacom’s ambitions of expanding into Latin America as it looks internationally to try to make up for a slowing domestic market.
Citations
1. http://bit.ly/1gck641 – Bureau of Labor Statistics
2. http://cnb.cx/1gct3xa – CNBC
3. http://bit.ly/2h670MG – Jack in the Box Inc.
4. http://nyti.ms/2h08pk1 – NY Times Dealbook
Planning Tips
Tips for Paying Off Credit Card Debt
For many, living with a large amount of credit card debt becomes a way of life. Short of winning the lottery, there is no quick-fix solution to get out of debt, despite what solicitors or infomercials might have you believe. There are, however, many tried-and-true strategies for paying down debt. Below are some techniques for paying off credit card debt. You should consult with your financial advisor to choose the method that works best for your particular circumstances.
Pay the most expensive balance first – If you want to get out of debt as cheaply as possible, list your debts from highest interest rate to lowest. Make the minimum monthly payment on each, but throw all your extra cash at the highest-interest debt. This is sometimes called the debt “avalanche” method of repayment. This strategy is the cheapest because when you have paid off all your debts, you will have paid the least amount of interest overall compared with other strategies.
Use the “snowball” method – With this method, you pay off your debts from smallest to largest. Getting a debt completely paid off in the shortest time possible creates confidence and a sense of hope that pushes you to stay on track. Similar to the avalanche method, you make the minimum monthly payment on each debt except the one you are focused on paying off. Once you have repaid it in full, you put the money you were allocating to it toward the next debt on your list.
Do a balance transfer – If you have good to excellent credit despite your debt, you might qualify for a low- or no-interest balance transfer. This will let you transfer your higher-interest balances to a new card and save on interest, making it easier and faster to get out of debt. Try to find a promotion with a low rate or no fee associated with the transfer. However, if you make a late payment, you could lose the low promotional interest rate. Also, you should avoid making new purchases on the card. They may not come with the same low interest rate.
Grow your emergency fund – Having no emergency fund is bad news because it means an emergency will make going into credit card debt an enticing option, especially if it is not possible to borrow from friends or family or cut back on spending. Try building your short-term savings to at least $500 while making only the minimum payments on your existing credit cards before you start concentrating on your debts. That way, you can tap your savings instead of swiping your credit card if you have an unexpected expense.
Switch to cash – If your goal is to pay off your credit card debt, the last thing you want to do is add to that debt by continuing to charge your expenses. Paying with cash not only prevents you from accumulating more debt, it can also help you spend less overall because of the psychological pain of handing over those $20s. Switching to an all-cash spending plan can help you cut spending by as much as 20%. It requires you to plan ahead and makes certain purchases, like the ones you make through the Amazon app on your phone, inconvenient, so you are less likely to make them.
Citations
1. http://bit.ly/2gO69gt – Kiplinger
2. http://bit.ly/1uv1oa5 – US News & World Report
3. http://bit.ly/2fUhPBl – Bankrate.com
4. http://bit.ly/1Ok4bPh – CreditCards.com
5. http://ti.me/1nDvI4i – Time
